International Business Machines Corp - Stocks

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International Business Machines Corporation or popularly known as IBM, is the world’s most prominent company that manufactures and sells a wide range of computer hardware, software and provides consulting and hosting services from mainframe computers to nanotechnology.

IBM is popularly called ‘Big Blue’ which is symbolic because of the blue color of the company’s logo, the company also had a dress code of white shirts and blue suits. IBM has its headquarters in Armonk, New York, and provides services to many clients located in over 170 countries of the world. The company has nearly 385,000 employees and almost more than 70% of the workforce functions outside the US.

IBM has been instrumental in providing world-class technology solutions and services, and some of the notable ones include Automated Teller Machine (ATM), Hard disk drive, Floppy disc, SQL programming language, Magnetic stripe card, UPC (Universal Product Code) barcode, and Dynamic Random Access Memory (DRAM). IBM is a very coveted American multinational company with many awards and accolades that includes 5 Nobel Prizes, 10 National Medals of Technology (USA), 6 Turing Awards, and 5 National Medals of Science.

History of IBM

In 1911, IBM was incorporated when different companies working on automation of business transactions were merged. IBM was founded as ‘Computing Tabulating Recording Company’ in Endicott, New York, and then later renamed to International Business Machines in 1924. IBM made several experiments and tested computers from 1940 to 1950 and, in 1944, launched Mark 1, which was the first machine to perform long computations automatically.

In 1949, the 604 Electronic Calculating Punch was introduced, which was designed to serve computation centers. In 1952, the first vacuum tube-based computer named ‘IBM 701’ was launched, and in 1957, the first computer disc storage system RAMAC (Random Access Method of Accounting and Control) was introduced.

The big breakthrough for IBM came in 1960 when the company launched the ‘Model 360’ mainframe. In 1981, IBM launched its first PC (personal computer). IBM found it difficult to sustain in the late 1980s and early 1990s due to rapid advancement in the field of computers and information technology, and in 1993, the company posted a net loss of more than $8 billion. However, Louis Gerstner, the CEO of the company, managed to reverse the fortune, and IBM posted profit due to emphasis on high margin opportunities.

In 2015, IBM sold its computer division to Chinese tech company ‘Lenovo.’ In 2015, IBM also did three acquisitions that were buying Merge Healthcare for $1 billion, acquiring Cleversafe, a data storage firm, and getting acquisition of The Weather Company.

IBM developed its supercomputer ‘Watson’ in 2011 that is equipped with innovative analytical software and superior artificial intelligence. The project ‘Watson’ was just for research purposes, but its capabilities have helped it to be developed on a wider scale and increase efficiency in the various business fields all across the world.

In 2017, IBM posted revenue of $17 billion, which saw a 24% increase in YOY (Year on Year). In 2018, the company announced a joint venture with the global company ‘Maersk’ to promote global trade and implement digital solutions for supply chain management by using Blockchain technology. The share price of IBM in February 2017 was $181, and it fell to $153.81 in March 2018 and the market capitalization was $142 billion.

In the last 8 years, IBM has invested more than $120 billion to restructure and increase business efficiency. Nearly $30 billion was invested in boosting cloud computing and artificial intelligence functions, while $45 billion was spent on R&D with emphasis on developing cloud and cognitive systems along with blockchain technology.

IBM also spent a staggering $53 billion on acquisitions of businesses, which was 65 in total, and most prominent was acquiring Red Hat in October 2018 for $34 billion. The company also put its focus on high-value divisions and sold 47 segments that did not fit with the company’s future strategies. But still, IBM comprises of numerous business units.

Current Business and Investment of IBM

IBM is a global technology company that operates in four segments that are Cognitive Solutions, Global Business Services (GBS), Systems and Global Financing, and Technology Services and Cloud Platforms. The core business of IBM is producing and selling computer-related hardware, and it develops operating systems and middleware software. IBM also offers technology maintenance service, cloud computing, consulting, outsourcing, and financing solutions.

• Cognitive Solutions division manages multiple functions that include descriptive, prescriptive, predictive analytics, and cognitive systems. One example is ‘Watson,’ which is a computing platform that is built to communicate in computer language, process valuable data, and learn from communication between computers and humans.
• The Global Business Services (GBS) overlooks provision of application management, consulting, and global process services to numerous clients
• In the Systems and Global Financing unit, the System segment deals with providing infrastructure technologies services to clients while the Global Financing division manages commercial financing, client financing, remarketing and remanufacturing services
• Technology Services and Cloud Platforms are involved in providing information technology and infrastructure services.

IBM has been a benchmark and pioneer of providing innovative technology and solutions. The company heavily invests in Research and Development (R&D) and has the most number of patents among all the business companies in the last 25 years.

Risk and Potential in IBM Environment

IBM strives to be a leader in designing, development, and produce the most innovative and advanced systems and services that include computer systems, mainframes, storage devices, networking systems, software, and microelectronics. IBM has been an iconic brand for 109 years and continues to innovate and play a key role in cognitive systems and cloud computing.

The company also provides premium enterprise software and financing solutions. SWOT analysis is a fundamental strategic tool that allows a big company like IBM to examine its current business efficiency and take necessary steps for future growth. The SWOT analysis of IBM is given by

• Strengths

IBM excels in offering superior systems, software, and services to its valued client all over the world. The company has been a benchmark in innovation and efficiency and delivering valuable IT and business solutions. IBM has done many calculated acquisitions and divestitures according to changing market trends that has helped the company to remain stable and provide long term value to its investors. IBM spends heavily on R&D with a focus on cognitive computing, cloud capabilities, and data analytics. IBM has a team of highly qualified and trained professionals who present not unique ideas and innovations but have also won numerous prestigious awards.

• Weaknesses

IBM has to frequently face litigations and legal proceedings due to any defects in its systems and fraudulent misrepresentations. The company is often criticized for focusing on large enterprises and offering expensive system and software solutions.

• Opportunities

IBM has a vital opportunity to grow its cloud and cognitive computing services, along with data analytics. The company has partnered with Twitter to bring its large data streams into IBM’s cloud-based analytics. IBM also has done an agreement with Apple to integrate personal applications in an enterprise environment. IBM has the resources and capabilities to become One Stop and One Solution for Enterprise Information Technology. The company can also expand to emerging markets for revenue generation. IBM has developed advanced Interactive Experience Labs that will help in expanding its consulting business.

• Threats

IBM faces numerous challenges, and one of them is global recessions and economic downturns like the one caused by ongoing Coronavirus. The financial health of the company is impacted by sudden and massive fluctuations in raw materials, labor, and shipping. As the business is spread all over the world, the currency rate changes also affect the revenue and earnings per share (EPS). IBM faces strong competition from rival brands that include Oracle, Infosys, Accenture, Hewlett Packard (HP), Microsoft, Cisco, and Amazon.

Stock Analysis of IBM

International Business Machines Corp. is listed and actively trades on the New York Stock Exchange (NYSE) with the ticker symbols ‘IBM.’ The company is listed under the ‘Technology Services’ Sector, and the industry is ‘Information Technology Services.’ IBM is also a member of other indices such as the Chicago Stock Exchange and Dow Jones Industrial Average.

The all-time high share price of IBM was $215.80 on March 14, 2013, and the average price in the last 52 weeks is $130.30.

IBM’s stock performance has not been exemplary for the last five years due to the leadership gap since 2012, and Watson failed to meet the expectations, and Watson has not been adopted in major sectors of the market as IBM predicted. Also, IBM missed the cloud computing train even after spending huge amount of money for its development. The cloud segment is dominated by Amazon AWS and Microsoft Azure.

The revenue of IBM declined from $110 billion in 2011 to $77 billion in 2019, while the EPS dropped from $13.25 to $10.63. The declining financial health of the company was further impacted by Coronavirus pandemic that has forced the closure of businesses, and people are asked to stay at home. In the first quarter of 2020, IBM posted $17.6 billion, and EPS was $1.84.

The Global Technology segment contributed most to the revenue with $6.5 billion, with a growth rate of 4% YoY (Year on Year). The Cloud and Cognitive Software unit accounted for $5.2 billion in revenue, with a growth rate of 7%. The Global Business Services (GBS) posted $4.1 billion with just 1% growth. The system segment showed $1.4 billion at a 4% growth.

The Cognitive applications gained 3%, and the Transaction processing platform increased with 15%. IBM’s business has been influenced due to Coronavirus, but still, it is good for investing as the company has increased its dividend payouts, and the dividend yield stands above 5%, which is better than many top technology firms that have higher market capitalization than IBM.

The cloud segment of IBM, though, has a small market share but expected to be worth billions of dollars as most of the businesses and government enterprises make full use of cloud computing technology. IBM generated almost $24 billion through cloud revenue from different business units.

In 2013, the cloud segment accounted for 4% of revenue, but now it has grown at 30%, and total cloud revenue posted by IBM was $6.3 billion. But many experts believe that IBM is still in transition, and investors should analyze the economic effects of Coronavirus and the recent financial performance of IBM before investing.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.